JOSEPH SYNGKLI,NONGPOH vs. INCOME TAX OFFICER, WARD-1, SHILLONG

Brief facts of the case as culled out from the order of the Ld. CIT(A) are as under: “That I, Joseph Syngkli a resident of Umsaw, Nongkharai Nongpoh, Ri Bhoi District Meghalaya, 793102 and by profession, I am a_contractor both government and private. It is very pertinent to state, that I am a member of a Scheduled Tribe as defined in clause (25) of Article 36 of the Constitution of India and my residence is in the Ri Bhoi District specified in Part II of the Table appended to paragraph-20 of of the Sixth Schedule to the Constitution of India. As such, any sources of income which accrues or arises to the me are from within the Khasi Hills and Jaintia Hills District/Tribal Areas or by way of dividend and interest on securities is exempt from Income Tax under section 10(26) of the Income Tax Act, 1961. As such, I am not in any manner whatsoever liable to any kind of income tax as the income that had accrues and arises does not form part of the total income. That I had filed my original Return of Income for the Assessment Year 2017- 18 vide E-filing Acknowledgement Number 340751811130421 dated 13.04.2021 showing my Total Income of Rs.10,88,000/- (Rupees Ten lakh eighty eight thousand only) as Income is exempted under Section 10 (26) of the Income Tax Act, 1961. During the course of the assessment proceedings, I admit that there were no compliances from me, Sir, this is due that I am unaware of the procedure about filing income tax return or how to upload the documents which were available with me. Sir, I am not that educate to know all the procedure and methods of income tax. However, in the assessment made the AO do not consider the fact that I am a member of Scheduled Tribe, thereby treating the bank transaction as my taxable income. Brief particulars relating to such additions are stated herein below: Business Income from the Contract Works and Cash Expenditure Rs. 1,15,80,781/- I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli. I am a contractor who engaged in the civil works of the state of Meghalaya, I admit that no submission were uploaded during the assessment proceedings which is a fault on my part. However, Sir, I would like to humbly beg you to consider my documents relating to my work which I am engaged for. The Assessing Officer had estimated my income from my contracts work @ 25% which is very illogical on his part since my works order which are issued to me are to be carried out within the state of Meghalaya. Therefore, I request the Appellate Authority to kindly delete the addition made on the contract receipts. The cash expenditure was added back by the AO to my total income which is not genuine, as I am engaged in the Construction works the cash was withdraw for payment of wages, purchase of raw materials etc. I therefore disagree with the addition made by the AO. Hence, I requested the Ld. CIT(Appeal) to delete this addition. Alleged Unexplained Investment under Section 69 Rs.68,00,000/- and interest income of Rs.80,079/-. I am maintaining and operating my bank account with the HDFC, Nongpoh Branch, Nongpoh_having Bank A/c No. 226661530002291. From the above investment I received interest income of Rs.80,079/- which this interest was also added to my total income of the year. I request the Ld.CIT(A) to kindly delete the addition and give me relieve from being penalised as the Time deposits was done in the bank situated in Meghalaya. That, I was issued with a Notice under section 148 vide DIN No. ITBA/AST/S/148/2020-21/1031833419(1) dated 27.03.2021 requesting me to prepare and file true and correct ITR for the A.Y. 2017-18 and to disclose the total income received from all sources within 30 days of receipt of the Notice. On receipt of the same, though, I belonging to the Schedule Tribe Community of Meghalaya, which as per Article 366 (25) of the Constitution of India, that defines Scheduled Tribes as "such tribes or tribal communities or part of or groups within such tribes or tribal communities as are deemed under Article 342 to belong to the scheduled Tribes (SIS) for the purposes of this Constitution" and as well as per the exceptional provision as provided under Section 10 (26) of the Income Tax Act, 1961 that confer special exemption to the Scheduled Tribes Community residing within Sixth Scheduled Areas, had not taken to be mandated by law to file any Income Tax Returns for the said Assessment Year 2017-18, since Section 10(26) of the Income Tax Act, 1961 does not fall within the meaning of Total Income or that form Part of the Total Income, as income in question accrues and arises within the Sixth Schedule Areas. However, on receiving Notice under section 148 of the Act I did filed return of income. However, to my utter surprise, the Assessing Officer, had passed the Assessment Order under Section 147 read with Section 144B of the Income Tax Act, 1961 vide. DIN: I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli. ITBA/AST/S/147/2021-22/1041824050(1) on the 28.03.2022 by adding back an amount of Rs. 1,84,60,860/- to the total income during the Assessment Year 2017-18. That the Assessing Officer has also admittedly appreciated the same and furthermore, bank transactions had occurred and arises within the Sixth Schedule Areas i.e., within the State of Meghalaya. However, he had indiscriminately passed the Impugned Assessment Order dated 28.03.2022 by concluding the Assessment Proceeding u/s 147 read with Section 144B of the Act, which is, in the eye of law is null and void, as he had not applied his judicial mind as per the Income Tax Act, 1961 that specifically provides special exemption to the Tribal Communities residing and carrying out their callings/business within the Sixth Schedule Areas. As such, the Assessment Order dated 28.03.2022 is not at all in consonant with Section 10(26) of the Income Tax Act, 1961. That it is furthermore pertinent to state, that the Assessing Officer, without considering the relevant exemption provision and without applying reasonable and fair application of mind. In this regard, the Assessing officer had absolutely and completely erred at the time of passing the Impugned Assessment Order dated 28.03.2022, as such the same needs to be reviewed and on being satisfied to set aside the same forthwith, for the ends of justice, fair play and good-conscience.”

The Ld. DR submitted that the order has been made u/s 147 r.w.s. 144B of the Act as no return of income was filed and the return was filed after the issue of notice u/s 148 of the Act. The Ld. DR also relied upon the page 5 para 4.5 of the assessment order which is as under and the difference in receipt shown and as appearing Form-26AS has been added: “4.5 On careful perusal of the above facts it can be seen that the assessee has offered total receipts in his ITR at Rs. 1,94,67,952/- whereas on perusal of the 26AS of the assessee it can be seen that the assessee had total receipts from contract amount to Rs.2,00,44,323/- further it is seen from the claim of the TDS in the ITR of the assessee, that the parties against which TDS has been claimed, their corresponding receipts are not offered in the ITR of the assessee and were not appearing in 26AS.” I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli.

The Ld. AR submitted that required submission was made before the Ld. CIT(A) but he did not examine the explanation. Our attention was drawn to page 175 of the paper book filed.

We have considered the submissions made and also gone through the paper book filed by the assessee. The assessee claimed that the assessee belongs to a Scheduled Tribe and original return of income was filed showing total income of Rs. 10,88,000/- and the income is exempt u/s 10(26) of the Act. He claims to be a contractor who is engaged in civil work in the State of Meghalaya. It is admitted that no submission was uploaded during the assessment proceedings which is a fault on his part. However, he is maintaining a bank account held in HDFC Bank, Nongpoh Branch from which interest income of Rs. 80,079/- was received which is added to his total income. The request was made to the Ld. CIT(A) to delete the addition as the time deposits were done in the bank situated in Meghalaya. The Ld. AO has also admittedly appreciated the same that bank transactions had occurred and arises within the Sixth Schedule Areas i.e. within the State of Meghalaya. However, the Ld. AO made the addition of Rs. 1,15,80,781/- by adding the business income from contract, cash expenditure of Rs. 65,69,700/- which is stated to be the reasons for reopening of assessment as no source was explained and as the assessee failed to justify the allowability of the said expenses in view of the provisions of section 40A(3), 40(i)(ia) and 37(1) of the Act and a sum of Rs. 68,80,079/- was also added as income from other sources. The Ld. CIT(A) allowed some relief to the assessee and the total income has been revised to Rs. 80,13,345/-. It is submitted before us as under: “a. Based on the order u/s 251 of the Income Tax, 1961 and in light of the above appellate order of Ld. CIT (A), NFAC, Delhi, dated 18-04-2024, the I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli. Total income determined in the assessment order passed on 28-09-2021 in the case is revised under section 251 of the IT Act, 1961 as under: Sl. No. Particulars Amount in Rs.

If the individual is residing in the schedule area.”

We have considered the submission made. The assessee claims that his income is exempt u/s 10(26) of the Act. In this context it is relevant to refer to Section 10 under Chapter III of the Act which deals with incomes which do not form a part of total income. As per the provisions of clause (26) of Section 10 of the Act, in computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (26) in the case of a member of a Scheduled Tribe as defined in clause (25) of article 366 of the Constitution, residing in any area specified34 in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura or in the areas covered by notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam under the proviso to sub-paragraph (3) of the said paragraph as it stood immediately before the commencement of the North-Eastern Areas I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli. (Reorganisation) Act, 1971 (81 of 1971) or in the Ladakh region of the State of Jammu and Kashmir, any income which accrues or arises to him,— (a) from any source in the areas or States aforesaid, or (b) by way of dividend or interest on securities;

The Ld. CIT(A) has held that the assessee did not get the books of account audited nor filed any Tax Audit Report and the income from business was arrived at on estimate basis and considering the provisions of section 44AB of the Act he partly allowed the appeal by holding as under: “6.7 During appellate proceedings the appellant produced, contract work orders from (1) IL and FS Transportation Networks (P) Ltd (2) Elsamex Maintenance Services Ltd. These suggest that the work was undertaken in areas specified in section 10(26). However, no documents proving work undertaken for SSK Infrastructure and TVASTAR Infratech Private Limited have been produced. Therefore, profit related to receipts from these parties is not allowed as exempt u/s 10(26). Income from these two receipts is estimated at 8% of the gross amount. Therefore, I uphold the addition amounting to Rs. 1,25,345. 6.8 As per the information available with the department, the appellant had made a time deposit of Rs.68,00,000 in the previous year with HDFC bank. The AO treated the same as unexplained investment u/s 69 and deemed the same to be the income of the appellant as the appellant failed to furnish satisfactory explanation for the nature and source of the deposit.

9 During appellate stage also the appellant failed to furnish any explanation for the source of the deposit made. Therefore, I uphold the addition made by the AO u/s 69. Since the addition u/s 69 is a deemed income and not an income derived a specific "source", the same is not eligible for exemption u/s 10(26).

10 The AO added to the total income of the appellant Rs.80,079 being interest received on bank deposit. The appellant has explained that interest was received from his deposit with HDFC Bank, Nongpoh Branch (A/c No. 2266615300002291). Since this income is derived from a source in the specified area, the same is eligible for exemption u/s 10(26). This addition may be deleted.

11 As per information with the AO, the appellant had incurred cash expenditure of Rs.65,69,700. This was held to be in violation of sections 40A(3), 40(i)(ia) and 37(1). This amount was added to the total income. I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli.

12 This amount is reported in AIR as withdrawal from current account in cash. There is no specific claim of expenditure by the appellant. In any case, the AO estimated the income of appellant from business. I have upheld the addition to the extent of Rs.1,25,345. Once income is estimated, there is no scope for making any addition u/s 40A(3) or 40(a)(ia). This addition is deleted.

In the result appeal is partly allowed.”

As regards the claim of exemption u/s 10(26) of the Act, the income arising from scheduled areas specified in the Act is to be treated as exempt u/s 10(26) of the Act and for the amount of Rs. 80,079/- the exemption was allowed since the Ld. AO did not give any adverse comment on the certificate claiming to belong to an eligible Tribe and therefore, the income being exempt u/s 10(26) of the Act, the exemption u/s 10(26) of the Act was allowed by the Ld. CIT(A). However, as regards the other issues, especially the contract income and the deposit of Rs. 68,00,000/- added, the exemption was denied.

Before us the assessee has submitted an additional ground of appeal and has made the submissions in respect of Ground nos. 1, 2 and 3 as under: “Ground no.-1 In this regards the appellant assessee is a member of Scheduled Tribe, resides and has source of income within VI Schedule Area of the Constitution of India i.e. Nongpoh, Ri-bhoi District, Meghalaya and has invested in the Fixed deposits out of income earned in this Schedule Area and encased Principal and interest from time to time as above credited in the same HDFC Bank Account and remaining fixed deposit only for Rs 15,00,000 which the Learned Assessing Officer not accounted for, is also invested from exempted income sources within the VI Schedule Area. In this regard, all entries are verifiable from the Bank Statement filed in Paper Book at Page No. 174 to 182…..

1 The summary of details regarding Principal FDR amount and Interest amount on FDR are mentioned in tabular form. It is further submitted as under: I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli. In the light of the explanation with documentary evidences as stated above and interest earned has been treated as exempted income earned u/s 10(26) of the Income Tax Act, 1961 as accepted by the Learned Commissioner of Income Tax (Appeals) in Para 6.10 at Page 12 of his Appellate Order then question of uphold Principal amounts as in detailed chart as above as addition u/s 69 of the Income Tax Act, 1961 is not tenable and is liable to deleted in full. It is therefore your kind honour humbly requested to kindly consider the facts of the case most sympathetically and grant natural justice to a member of Scheduled Tribe of Meghalaya, resides and has earned income within VI Schedule Area of the Constitution of India and delete the addition made under section 69 of the Income Tax Act, 1961 of Rs. 68,00,000 and oblige. For which act of kindness, the appellant assessee, as in duty bound, shall ever pray. Ground no.-2 In this regard, the appellant assessee hereby humbly requests to your kind honour that kindly refer Page No. 52 of Paper Book filed at Sl. 36 in which the Business Income determined Rs. 10,87,999 and the Learned Assessing Officer did not give any adverse comments in response to Remand Report furnished by him before the Learned Commissioner of Income Tax (Appeals) as mentioned at Page 11 in forth line from starting of said page regarding the appellant assessee is a Member of Scheduled Tribe of belonging to Bhoi Tribe, residing in Ri-Bhoi District of Meghalaya has earned income within this Scheduled Area is exempted under section 10(26) of the Income Tax Act, 1961. It is therefore humbly requested to your kind honour to kindly consider the facts of the case most sympathetically and grant natural justice to a Member of Scheduled Tribe resides and has earned income within VI Schedule Area of the Constitution of India and kindly allow exemption for the said Business Income earned in the Schedule Area of Rs. 10,87,999 and oblige. For which act of kindness, the appellant assessee, as in duty bound, shall ever pray. Ground no.-3 In this regard, the documentary evidences of income earned Rs. 1,09,749 determined by the Learned Commissioner of Income Tax (Appeals) @8% against payments credited Rs. 13,71,867 out of RA Bills issued and signed by SSK Infrastructures, Umsning Bypass, NH-40, Meghalaya attached in Paper Book filed at Page No. 249 to 251 and verifiable. It is therefore humbly requested to your kind honour to kindly consider the same most sympathetically and grant natural justice to a Member of Scheduled Tribe of Meghalaya, resides and has earned income within VI Schedule Area of the Constitution of India and humbly requested to grant exemption under section 10(26) of the I.T. Act, 1961 for this estimated income of Rs. 1,09,749 I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli. out of uphold addition of Rs. 1,25,345 under Para 6.7 at Page 11 of the appellate order of the Learned Commissioner of Income Tax (Appeals) and oblige. For which act of kindness, the appellate assessee, as in duty bound, shall ever pray.”

Considering the submissions made, we are of the view that adequate opportunity of being heard needs to be provided to the assessee to explain the claim of exemption before the Ld. CIT(A). Therefore, the order of the Ld. CIT(A) is set aside and the appeal is restored to him to be decided afresh after considering the submission of the assessee and after providing a reasonable opportunity of being heard to the Ld. AO as per Rule 46A of the Rules. Hence, all the grounds of appeal raised by the assessee are allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on 29th May, 2025 under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963. [Manomohan Das] [Rakesh Mishra] Judicial Member Accountant Member Dated: 29.05.2025 Bidhan (P.S.) I.T.A. No.: 157/GTY/2024 Assessment Year: 2017-18 Joseph Syngkli. Copy of the order forwarded to:

CIT(A)-

CIT-

CIT(DR), Guwahati Benches, Guwahati.

Guard File. //// By order